PLR 200031035: Former resident's departure lacked a principal tax avoidance purpose

Plain-English summary

A long-term U.S. resident relinquished his lawful permanent resident status. His net worth exceeded the threshold under the expatriation rules then in effect, raising a presumption that avoiding U.S. taxes was a principal purpose of his departure. He was a lifelong citizen of another country and represented that he would become a resident fully subject to income tax in the country where his wife was born. The IRS found his ruling request complete and made in good faith under Notice 98-34. Based on the submitted facts, it concluded that avoiding U.S. income, estate, or gift taxes was not one of his principal purposes for expatriating. The IRS expressly gave no opinion on his tax liability before departure or on later liability under other Code provisions.

Ruling snapshot

• Question: Would the former resident's departure be treated as having a principal purpose of avoiding U.S. taxes under section 877?
• Outcome: Approved. The IRS found no principal tax avoidance purpose on the submitted facts.
• Key authorities: IRC §§ 877, 2107, and 2501(a)(3); Notices 98-34 and 97-19.

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury
                                                 Washington, DC 20224
Index No.: 877.01-00
Number: 200031035                                Telephone Number
Release Date: 8/4/2000
                                                 Refer Reply to


                                                 CC:INTL:B1/PLR-118204-99
                                                 Date:
                                                   May 5, 2000

A             =

Date B        =
Date C        =
Date D        =
Year E        =
Country F     =
Country G     =

Dear

       This is in response to your letter dated November 12, 1999, requesting a ruling
under section 877(c) of the Internal Revenue Code of 1986 ("Code") that A’s loss of
long-term resident status did not have for one of its principal purposes the avoidance of
U.S. taxes under subtitle A or subtitle B of the Code. The information submitted for
consideration is substantially as set forth below.

       The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by penalty of perjury statements executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

       A is a long-term resident of the United States within the meaning of section
877(e), who relinquished his U.S. lawful permanent resident status ("expatriated") on
Date B. A has been a citizen of Country F during all of his life by reason of his birth on
Date C in Country F. A and A's parents were born in Country F. A’s wife was born in
Country G. A became a permanent resident of the United States and obtained his
green card in Year E. On the date of A’s expatriation, his net worth exceeded the net
worth required under section 877(a)(2).

       Section 877 generally provides that a citizen who loses U.S. citizenship or a U.S.
long-term resident who ceases to be taxed as a lawful permanent resident (individuals
who "expatriate") within the 10-year period immediately preceding the close of the
taxable year will be taxed under section 877(b) and the special rules of section 877(d)
for such taxable year, unless such loss did not have for one of its principal purposes the
avoidance of U.S. taxes. Sections 2107 and 2501(a)(3) provide special estate and gift
tax regimes, respectively, for individuals who expatriate with a principal purpose to
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avoid U.S. taxes.

       A former citizen or former long term-resident will be treated as having expatriated
with a principal purpose to avoid U.S. taxes for purposes of sections 877, 2107 and
2501(a)(3) if the individual’s average income tax liability or the individual’s net worth on
the date of expatriation exceed certain thresholds. See sections 877(a)(2),
2107(a)(2)(A) and 2501(a)(3)(B).

        A former U.S. citizen or former long term-resident whose net worth or average
tax liability exceeds these thresholds, however, will not be presumed to have a principal
purpose of tax avoidance if that former citizen is described within certain statutory
categories and submits a request for a ruling within one year of the date of loss of U.S.
citizenship for the Secretary’s determination as to whether such loss had for one of its
principal purposes the avoidance of U.S. taxes. See sections 877(c), 2107(a)(2)(B) and
2501(a)(3)(C).

         Under Notice 98-34, 1998-27 I.R.B. 30, modifying Notice 97-19, 1997-1 C.B.
394, a former long-term resident whose net worth or average tax liability exceeds the
applicable thresholds will not be presumed to have a principal purpose of tax avoidance
if that former resident is described within certain categories and submits a complete
and good faith request for a ruling as to whether such loss had for one of its principal
purposes the avoidance of U.S. taxes.

        Notice 98-34 requires that certain information be submitted with a request for a
ruling that an individual’s expatriation did not have for one of its principal purposes the
avoidance of U.S. taxes.

        A is eligible to request a ruling pursuant to Notice 98-34 because A will become,
not later than the close of a reasonable period after his expatriation, a resident fully
liable to income tax in Country G, the country where A’s wife was born.

      A submitted all the information required by Notice 98-34, including any additional
information requested by the Service after review of the submission.

        Accordingly, based on the facts submitted and the representations made, we
conclude that A has made a complete and good faith submission in accordance with
section 877(c)(1)(B) and Notice 98-34. We further conclude that A will not be treated
under section 877(a)(2) as having as one of his principal purposes of expatriating the
avoidance of U.S. taxes because the information submitted clearly established the lack
of a principal purpose to avoid taxes under subtitle A or B of the Code.

        Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. In addition, no opinion is expressed as to A's U.S. tax liability
for taxable periods prior to his loss of permanent residence status or for taxable periods
after his loss of permanent residence status under sections of the Code other than
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sections 877, 2107, and 2501(a)(3).

      A copy of this letter must be attached to A’s U.S. income tax return for the year in
which A obtained the ruling (whether or not A is otherwise required to file a return).

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

         In accordance with the power of attorney on file with this office, a copy of this
letter is being sent to A.

                                                  Sincerely yours,
                                                  W. EDWARD WILLIAMS
                                                  Senior Technical Reviewer, Branch 1
                                                  Office of the Associate Chief Counsel
                                                  (International)

cc:    Assistant Commissioner (International)
       International District Operations OP:IN:D
       Chief, Examination Division